Pre-trial Claim in Cross-Border Disputes in Russia

 

November 30, 2023

BRACE Law Firm ©

 

Disputes between Foreign Trade Participants may arise during the performance of contractual obligations under foreign trade contracts. These are typically resolved at the pre-trial stage by sending a claim or through other pre-trial settlement methods. To ensure clear interaction, parties to a foreign trade contract generally specify the pre-trial dispute resolution procedure in a separate section of the contract.

A claim constitutes a notification to a counterparty stating that it has breached or improperly performed its obligations under a foreign trade contract. In business practice, claims are often sent in writing; however, the contract specifies the procedure for sending the claim, the review periods, the response timeline, and the pre-trial dispute resolution procedure.

Pre-trial Dispute Resolution Procedure

Pre-trial settlement should be understood as activities undertaken by the parties to a dispute prior to filing a lawsuit. These activities may be carried out independently (negotiations, claim procedure) or with the involvement of third parties (e.g., mediators, the financial ombudsman for consumers of financial services), as well as by applying to an authorized public authority to resolve the dispute in an administrative procedure. [1]

In civil proceedings, the pre-trial dispute resolution procedure is mandatory only in cases provided for by federal law. [2]

In arbitration (commercial) court proceedings, such a procedure is mandatory:

• for disputes arising from civil law relations, in cases provided for by federal law or contract;
• for disputes arising from administrative and other public law relations, only in cases provided for by federal law.[3]

In accordance with Resolution of the Plenum of the Supreme Court of the Russian Federation No. 18 dated June 22, 2021, On Certain Issues of Pre-trial Dispute Resolution in Civil and Arbitration Proceedings (the "Resolution of the Plenum No. 18"), a mandatory pre-trial dispute resolution procedure is prescribed for disputes:

• on the mandatory conclusion of a contract; [4]
• on the amendment and termination of a contract; [5]
• on the termination of a lease agreement, rental agreement, vehicle lease, lease of buildings and structures, lease of enterprises, or financial lease; [6]
• on the termination of a contract for the carriage of cargo, passengers, or baggage, as well as for compensation for damage caused during the carriage of passengers and baggage;[7]
• on the termination of a bank account agreement; [8]
• involving consumers of financial services asserting property claims against financial organizations that provided such services, as well as claims arising from an insurer's violation of the procedure for insurance indemnity payment established by the Law on OSAGO;[9]
• regarding air carriage of cargo or air carriage of mail; [10]
• regarding carriage of cargo by sea; [11]
• regarding cargo transshipment associated with business activities, [12] etc.

It is important to note that a demand, claim, statement, complaint, or other document must be signed by a person authorized to sign it. [13] A person's authority may derive, in particular, from a power of attorney, law, or an act of an authorized state body or local government body.[14] The correspondence may be delivered to the addressee personally, sent via postal service, or through other delivery services. Unless otherwise provided by law or contract, or implied by custom or established practice between the parties, the correspondence may be sent by registered mail or by declared value letter with an inventory of the enclosure.

Sending correspondence using the information and telecommunication network "Internet" (e.g., via email, social networks, and messengers) evidences compliance with the pre-trial dispute resolution procedure if such a procedure is established by the contract (foreign trade contract) between the parties, by a regulatory legal act, is explicitly and unambiguously provided for in the contract, or if this method of correspondence is a standard established business practice between the parties and previous correspondence was exchanged, inter alia, in this manner.

When determining whether correspondence was sent using an information and telecommunication network, admissible evidence includes printouts of materials posted on such a network (screenshots) made and certified by the persons participating in the case, indicating the URL of the webpage from which the printout was made, and the exact time of its retrieval.[15]

However, mediation becomes a mandatory pre-trial dispute resolution method if the parties have concluded an agreement to apply the mediation procedure and have undertaken not to resort to court proceedings within the period agreed upon for its conduct,[16] or if they have replaced the pre-trial dispute resolution procedure provided by federal law with mediation, provided that the relevant federal law allows for such modification by contract.

It is important to note that, in accordance with Clause 4 of the Resolution of the Plenum No. 18, sending a message of an informational nature and/or a message that serves as grounds for filing a lawsuit does not constitute a pre-trial dispute resolution procedure. Such messages include, in particular:

• advance notification by a participant of a relevant civil law community to other participants of said community regarding the intention to file a lawsuit; [17]
• a demand for a reward by a person who found a lost item; [18]
• notification to participants in shared ownership of the intention to sell one's share to an outsider;[19]
• a demand by participants in shared ownership for the partition of their share;[20]
• a demand by an owner, landlord, or other interested parties sent to a citizen whose right to use residential premises has terminated on grounds provided by law or contract, or in cases of misuse of residential premises, systematic violation of the rights and legitimate interests of neighbors, or mismanagement of residential premises, regarding the necessity to vacate the residential premises within a term established by the owner, landlord, or other interested party; [21]
• a demand by a participant in shared construction (equity construction) for the elimination of deficiencies (defects) in the object of shared construction identified during the warranty period [22].

When drafting and sending correspondence, the rules established by Article 165.1 of the Civil Code apply. These rules state that statements, notifications, notices, demands, or other legally significant messages, with which the law or a transaction associates civil law consequences for another person, entail such consequences for that person from the moment of delivery of the corresponding message to them or their representative. A message is considered delivered even if it arrived at the person to whom it was sent (the addressee) but, due to circumstances depending on them, was not handed over to them or the addressee did not familiarize themselves with it.

In the event of a dispute involving a branch (representative office) of the defendant, sending correspondence by the plaintiff only to the address of such branch (representative office) is sufficient if the claims arise from relations connected with the activities of the branch (representative office). [23]

If a law or contract establishes a list of documents and/or information that must be sent to comply with the pre-trial dispute resolution procedure, the failure to send such documents and/or the failure to communicate such information, as well as sending (communicating) them in an improper form or quantity, does not evidence compliance with the specified procedure. [24]

However, if the plaintiff was unable to submit all documents and/or information provided by federal law or contract for pre-trial dispute resolution, but the submitted documents clearly evidence the substance and amount of the declared claims, or if the documents are in the debtor's possession, the pre-trial dispute resolution is considered observed.

If the plaintiff was unable to submit all documents provided by federal law for pre-trial dispute resolution, but such documents are in the possession of a state body, local government body, other body, organization endowed by federal law with separate state or other public powers, or an official, or may be obtained by said persons through interdepartmental interaction, the pre-trial dispute resolution is considered observed.

The pre-trial dispute resolution procedure in the form of a conciliation procedure (e.g., negotiations, mediation) is considered observed if the plaintiff submits documents confirming the use of the relevant procedure by the disputing parties. Such documents include, inter alia, a protocol of disagreements, an agreement of the parties to terminate the mediation procedure without reaching a consensus on existing disagreements, or a statement of refusal to continue the mediation procedure. [25]

If one of the parties to the dispute sent a proposal in writing to use a conciliation procedure that is mandatory by virtue of law or contract (e.g., a proposal to conduct negotiations, a proposal to resort to mediation), and did not receive the other party's consent to use said procedure within 30 calendar days from the date of its sending or within another reasonable term specified in the proposal, such proposal is considered rejected, and the pre-trial procedure is considered observed, provided that documents confirming the sending of such proposal are attached to the statement of claim.

It is important to note that when filing a statement of claim, it must contain information on the plaintiff's compliance with the mandatory pre-trial dispute resolution procedure, and documents confirming compliance with this procedure must be attached to the statement. [26] Failure to submit such documents with the statement of claim, despite an indication in the statement of claim regarding compliance with said procedure, constitutes grounds for leaving the statement of claim without movement (staying the proceedings). [27]

Non-compliance with the pre-trial dispute resolution procedure established by a foreign trade contract or regulatory documents may lead to a refusal to consider the statement of claim (dismissal without prejudice). [28] In this regard, it is important to pay attention to this issue when drafting the text of a foreign trade contract to eliminate misunderstandings between partners regarding this direction.

Claim to a Foreign Partner

It is better to resolve any dispute arising between partners through negotiations; however, if oral appeals do not lead to a positive result and the issue is not resolved, it is necessary to send the counterparty a corresponding appeal or claim. Often, a claim to a foreign partner substantially coincides with a claim that would be sent to a Russian counterparty.

The claim must reflect the following information:

• the name of the counterparty to whom the claim is sent, the company address, the details of the head/CEO, and their surname, first name, and patronymic (if available);
• information about the sender of the claim (name of the legal entity, TIN [INN], OGRN, company registration address, surname, first name, patronymic (if available) and position of the head/CEO; for an individual entrepreneur — surname, first name, patronymic (if available), OGRNIP, address), contact details (telephone, email address);
• details of the foreign trade contract, the obligations under which have been breached or not performed;
• circumstances under which the obligations accepted under the foreign trade contract were not performed; it is also necessary to reflect the unfulfilled obligations and which terms of the contract were violated by the other party;
• if negotiations were held, it is necessary to reflect the result of meetings or telephone conversations held with the counterparty's officials;
• in the conclusion of the sent claim, it is necessary to reflect specific demands, the deadline for their fulfillment, and the deadline for responding to the claim (if it was not reflected in the text of the foreign trade contract).

For foreign partners, it is customary to send a claim in two languages: Russian and English, or the language of the partner's country, if it is possible to translate the text of the claim into the language of the partner's country.

Sending any correspondence is carried out in the manner agreed upon in the text of the foreign trade contract:

• in writing to the company address;
• to an email address.

In the case of sending a claim in writing, it is necessary to ensure that it is possible to track its receipt when sending such correspondence.

Upon failure by the foreign partner to fulfill the requirements reflected in the claim and failure to resolve the conflict arisen through negotiations, [29] the partner applies to the judicial bodies[30] defined in the foreign trade contract to resolve the dispute.

Claims Procedure with an Arbitration Clause

For interaction between Foreign Trade Participants within the framework of pre-trial dispute resolution, at the stage of concluding a foreign trade contract, foreign partners conclude an arbitration clause. In accordance with Law of the Russian Federation No. 5338-1 dated July 7, 1993, On International Commercial Arbitration (the "Law No. 5338-1", the "Law on International Commercial Arbitration"), this constitutes an agreement of the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and shall be in writing.

The conclusion of an arbitration agreement in writing is considered observed if the arbitration agreement is concluded in a form that provides for the recording of the information contained therein or the accessibility of such information for subsequent use. Furthermore, an arbitration agreement is considered concluded in writing via electronic communication if the information contained therein is accessible for subsequent use and if the arbitration agreement is concluded in accordance with the requirements of the law provided for a contract concluded by the exchange of documents via electronic communication.

However, in accordance with Article 3 of the Law No. 5338-1, unless the parties have agreed otherwise:

• any written communication is deemed to have been received if it is delivered to the addressee personally or at their place of business, habitual residence, or mailing address; if none of these can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee's last-known place of business, habitual residence, or mailing address by registered letter or any other means which provides a record of the attempt to deliver it;
• the communication is deemed to have been received on the day of such delivery (recording of the attempt to deliver).

The consideration of disputes arising from contractual and other civil law relations arising in the course of foreign trade and other types of international economic relations, and other disputes the consideration of which in the order of international commercial arbitration is provided for by the Law on International Commercial Arbitration, as well as other federal laws or international treaties of the Russian Federation, is carried out in accordance with the Rules of Arbitration of International Commercial Disputes. [31]

The arbitration clause must reflect:

• the pre-trial dispute resolution procedure for disputes arising during the performance of the foreign trade contract;
• the procedure for sending a claim (including the form of the claim, the address for sending it);
• timelines for reviewing the claim;
• measures taken by the parties to settle the conflict arisen;
• consideration of the dispute if the parties were unable to resolve the emerging issues at the pre-trial settlement stage.

The consideration of an emerging dispute in a particular judicial body must be recorded in the text of the foreign trade contract to eliminate misunderstandings on this issue. Decisions of foreign arbitration courts/tribunals are enforced based on the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,[32] according to which each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. At the same time, there shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards applies than are imposed on the recognition or enforcement of domestic arbitral awards.

For the CIS countries, attaching importance to the development of cooperation in the field of resolving disputes related to economic activities between entities, the Agreement of the CIS Countries dated March 20, 1992, On the Procedure for Settling Disputes Related to the Conduct of Economic Activity [33] (the "CIS Agreement") was adopted. It regulates issues of resolving cases arising from contractual and other civil law relations between Economic Entities, from their relations with state and other bodies, as well as the execution of decisions thereon. Economic Entities are understood as enterprises, their associations, organizations of any organizational and legal forms, as well as citizens having the status of an entrepreneur in accordance with the legislation in force in the territory of the CIS member states, and their associations.

Pre-trial Dispute Resolution in Connection with the Application of Special Economic Measures

In addition to the conditions for pre-trial dispute resolution and sending claims established by regulatory documents and the foreign trade contract, parties to an international agreement must comply with special requirements established in connection with the unfriendly actions of foreign states.

In connection with the unfriendly actions of foreign states, Decree of the President of the Russian Federation No. 95 dated March 5, 2022, [34] defined a temporary procedure for the fulfillment by Russia, constituent entities of the Russian Federation, municipalities, and residents of obligations under credits and loans and financial instruments to foreign creditors who are foreign persons associated with foreign states [35] that commit unfriendly actions against the Russian Federation, Russian legal entities, and individuals.

The additional restrictions established impose obligations on foreign partners to comply with newly adopted regulatory documents and introduced restrictions, in connection with which Foreign Trade Participants need to monitor changes in legislation and adapt to them in a timely manner.

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References

[1] Resolution of the Plenum of the Supreme Court of the Russian Federation No. 18 dated June 22, 2021, On Certain Issues of Pre-trial Dispute Resolution in Civil and Arbitration Proceedings.

[2] Clause 4 of Article 3 of the Code of Civil Procedure of the Russian Federation.

[3] Clause 5 of Article 4 of the APC RF.

[4] Clause 1 of Article 445 of the Civil Code.

[5] Clause 2 of Article 452 of the Civil Code.

[6] Clause 3 of Article 619 and Article 625 of the Civil Code.

[7] Clause 2 of Article 795, Article 797 of the Civil Code.

[8] Paragraph two of Clause 4 of Article 859 of the Civil Code.

[9] Clauses 1 and 2 of Article 25 of Federal Law No. 123-FZ dated June 4, 2018, On the Commissioner for the Rights of Consumers of Financial Services.

[10] Clause 3 of Article 124 of the Air Code of the Russian Federation.

[11] Clause 1 of Article 403 of the Merchant Shipping Code of the Russian Federation.

[12] Part 1 of Article 25 of Federal Law No. 261-FZ dated November 8, 2007, On Seaports in the Russian Federation and on Amendments to Certain Legislative Acts of the Russian Federation.

[13] Resolution of the Arbitration Court of the East Siberian District No. F02-7398/2017 dated February 16, 2018, in case No. A33-4131/2017, On the recovery of debt and penalty under a supply contract. Filing a lawsuit with the court, the plaintiff referred to the fact that the defendants had not paid for the supplied equipment in full. Having reviewed the case materials, the court decided to satisfy the demand, due to the fact that the delivery of goods by the plaintiff was established, which was accepted by the defendant without objections regarding the volume and cost, and evidence of payment of the debt in the amount claimed for recovery was absent. The fact of interruption of the limitation period, confirmed by acts of reconciliation of debt, was also taken into account.

[14] Clause 1 of Article 182 of the Civil Code.

[15] Articles 55 and 60 of the Code of Civil Procedure of the Russian Federation, Articles 64 and 68 of the APC RF.

[16] Clause 1 of Article 4 of Federal Law No. 193-FZ dated July 27, 2010, On the Alternative Procedure for Dispute Resolution with the Participation of a Mediator (Mediation Procedure).

[17] Clause 6 of Article 181.4 of the Civil Code.

[18] Article 229 of the Civil Code.

[19] Article 250 of the Civil Code.

[20] Article 252 of the Civil Code.

[21] Clause 1 of Article 35, Clause 1 of Article 91 of the Housing Code of the Russian Federation.

[22] Clause 6 of Article 7 of Federal Law No. 214-FZ dated December 30, 2004, On Participation in Shared Construction of Apartment Buildings and Other Real Estate Objects and on Amendments to Certain Legislative Acts of the Russian Federation.

[23] Article 55 of the Civil Code. [24] Clause 17 of the Resolution of the Plenum No. 18.

[25] Article 14 of Federal Law No. 193-FZ dated July 27, 2010, On the Alternative Procedure for Dispute Resolution with the Participation of a Mediator (Mediation Procedure).

[26] Clauses 7, 7.1 of Part 2 of Article 131, Clauses 3, 7 of Article 132 of the Code of Civil Procedure of the Russian Federation and Clauses 8, 8.1 of Part 2 of Article 125, Clauses 7, 7.1 of Part 1 of Article 126 of the APC RF.

[27] Article 136 of the Code of Civil Procedure of the Russian Federation, Article 128 of the APC RF.

[28] Resolution of the Arbitration Court of the North Caucasian District No. F08-10135/2023 dated October 11, 2023, in case No. A53-37711/2022, On the recovery of a fine under a freight forwarding contract. The client pointed out the delay in the fulfillment of obligations by the forwarder for the carriage of cargo and the evasion of paying the fine in the pre-trial order. The court of first instance unreasonably refused to satisfy the company's motion to leave the statement of claim without consideration due to non-compliance with the pre-trial dispute resolution procedure properly. The applicant's argument regarding the existence of grounds for leaving the statement of claim without consideration due to the plaintiff's non-compliance with the pre-trial dispute resolution procedure was the subject of the courts' consideration, and a proper legal assessment was given to it. The demand was satisfied partially, as the violation of the contract terms by the forwarder was confirmed.

[29] Resolution of the Arbitration Court of the Moscow District No. F05-28247/2023 dated November 20, 2023, in case No. A40-179366/2022, On the recovery of damages. The plaintiff believed that damages were caused to them as a result of improper performance by the defendant of obligations to guard the cargo. Since the pre-trial dispute resolution procedure initiated and implemented by the plaintiff did not bring a positive result, the plaintiff filed a lawsuit with the court. Due to the lack of confirmation of the fact of causing damages through the fault of the defendant, the satisfaction of the claims was refused.

[30] Resolution of the Arbitration Court of the Moscow District No. F05-8942/2023 dated June 5, 2023, in case No. A41-61065/2022, On the termination of an agreement on conducting technical and promotional activities in the territory of a special economic zone, recovery of current payments. The plaintiff indicated that the identified violations were not eliminated by the defendant. Since the pre-trial dispute resolution procedure initiated and implemented by the plaintiff did not bring a positive result, the plaintiff applied to the court with a lawsuit. The demand was satisfied because the fact of improper performance by the defendant of its obligations under the agreement was confirmed by documents.

[31] Appendix 2 to the Order of the Chamber of Commerce and Industry of the Russian Federation No. 6 dated January 11, 2017.

[32] Concluded in New York in 1958. The document was ratified by the Decree of the Presidium of the Supreme Soviet of the USSR dated August 10, 1960, with a declaration.

[33] The document was ratified by the Resolution of the Supreme Soviet of the Russian Federation No. 3620-1 dated October 9, 1992.

[34] Decree of the President of the Russian Federation No. 95 dated March 5, 2022, On the Temporary Procedure for Fulfillment of Obligations to Certain Foreign Creditors.

[35] Order of the Government of the Russian Federation No. 430-r dated March 5, 2022, On Approval of the List of Foreign States and Territories Committing Unfriendly Actions Against the Russian Federation, Russian Legal Entities, and Individuals.